UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 15628 / January 28, 1998
Securities and Exchange Commission v. J.W. Korth & Co. and James Wilder
Korth., Case No. 97-0280-Civ-Ungaro-Benages (USDC/SD FL)
The Securities and Exchange Commission ("SEC") announced that on
January 22, 1998, the Honorable Ursula Ungaro-Benages, United States
District Judge for the Southern District of Florida, granted the SEC's
motion and entered summary judgment against J.W. Korth & Co., a Miami,
Florida broker-dealer, and its president James Wilder Korth. The judge
ruled that Korth and his firm violated the securities laws by repeatedly
refusing to give the SEC the serial numbers for defaulted pre-World War II
German Bonds they were selling. The SEC had alleged that Korth was hiding
the information from it and that, without the numbers, the SEC could not
determine whether sales of the bonds violated the federal securities laws.
Earlier in the case, the SEC had sought and obtained a temporary
restraining order ("TRO") ordering Korth to give the SEC the numbers.
Korth refused to do so, and was quoted in a Miami Herald article as saying
that he "was going to stand firm and not produce any numbers." Korth
finally turned over the numbers after a February 1997 hearing during which
the judge granted the SEC's request for a preliminary injunction and
ordered him to do so or face a contempt citation.
In entering final judgment against Korth and his firm, the judge noted
that they had "failed to comply with the TRO, openly and publicly defied
it, and only turned over the numbers after the Court indicated its view
that those actions were contumacious and that civil and criminal contempt
citations were imminent." Based on their violation of the law and this
conduct, the judge permanently enjoined Korth and the firm from future
violations of the relevant provision, Section 17 of the Securities Exchange
Act of 1934, and imposed first-tier penalties of $55,000 and $5,500 on the
firm and Korth respectively.
The case appears to be the first time a broker-dealer has been
penalized for failing to comply with the SEC's statutory examination
powers. In her opinion, the judge recognized the SEC's vital role in
regulating the securities markets, and ruled that the SEC right to examine
a registered broker-dealer is "central to the execution of [its] congress-
ionally-mandated regulatory duties." As such, the judge ruled that the
SEC's examination powers are subject only to reasonable time, place and
manner restrictions.